Stage of Production Producer Price Indexes

OVERVIEWThe Stage of Production (SOP) indexes relate to all products that are produced by establishments classified to a specific industry according to the Australian and New Zealand Standard Industrial Classification (ANZSIC) for the supply of commodities (goods and services) to the Australian economy in a "stage of production" framework.Under the Stage of Production concept transactions (flows of products) are categorised according to their economic destination on a sequential basis along the production chain. In simple terms they are placed in one of three stages, namely:

· Preliminary demand – Products consumed as inputs into the production of Intermediate demand.· Intermediate demand – Products consumed as inputs into the production of Final demand.· Final demand – Products consumed as Final demand, with no further processing.

PURPOSETo aid in the analysis of inflation.

SCOPEProducer price indexes are compiled on a gross industry basis. This means that the scope of the indexes includes all transactions occurring within an industry and between that industry and other industries. This approach aligns with the principal purpose of the producer price indexes, which is to support the compilation of the Australian National Accounts and Balance of Payments.

As the main focus is on domestic inflation, exports are excluded from the headline SOP series 'Final demand’, as presented in the key figures on the front page and in tables 1–6 of the publication Producer Price Indexes, Australia (Cat. No. 6427.0). Index series for Final demand including exports are available in table 10 of this publication (Cat. No. 6427.0).

Import transactions are included within the framework, recognising that they represent an important potential source of inflationary pressure.

In concept, the SOP indexes are intended to incorporate all flows of products within the economy. However, while goods are reasonably well represented, there are shortfalls in the coverage of many Services industries, including the major ‘margin’ services of retail and wholesale. This is a direct consequence of the limited coverage of the Services industries in the producer price indexes.

The Stage of Production indexes incorporate other Producer Price indexes as classified under ANZSIC 2006, such as the:

· Output of the Agriculture, Forestry and Fishing Industries,· Output of the Manufacturing Industries· Output of the Construction Industries· Output of the Services Industries

DATA DETAIL

Conceptual framework Under the SOP concept flows of products are categorised according to their economic destination on a sequential basis along the production chain. The basis for the categorisation is the Australian National Accounts: Input–Output Tables – Electronic Publication, 2007–08 Final (cat. no. 5209.0.55.001). In simple terms, transactions (flows of products) are placed in one of three stages, namely:

· Preliminary demand · Intermediate demand · Final demand

Within this framework, the flows can broadly be regarded as preliminary demand products feeding into the production of intermediate demand products which in turn feed into the production of final demand products. SOP indexes are constructed on a gross industry basis. This framework minimises the multiple counting issues inherent in gross industry indexes by segmenting the economy into stages and measuring the price changes of transactions undertaken with the next stage of production. The stages cannot be aggregated, however a summary headline measure of general inflation is provided for each stage.

It should be noted that the indexes for each of the stages are all representative of a single (simultaneous) point in time which allows for analyses of price change within the stages as products flow through. This is useful since price changes for earlier stages of production may be indicators of future price changes for the later stages of production.

Transaction Flow ApproachThe ABS has adopted a transaction flow approach for partitioning the flow of individual products into the different production stages. Under this approach the stage of production in which a transaction is placed is determined by where the product is consumed. For example, exported wheat and domestically used wheat are treated as different products for index construction purposes. Exported wheat is treated as a Final demand product while wheat to be processed domestically to make flour is considered to be a Preliminary demand product. Similarly, a product such as energy can appear within all three stages.

It is important to note that the compilation of the ABS producer price indexes within the SOP framework is not structured around the products that are transacted. Internationally, some statistical agencies who make use of the SOP concept will allocate each product to a particular stage. The ABS makes no attempt to place individual products into a single stage of production as this would be very challenging due to a number of factors. For example, products such as wheat, wool and iron ore are exported in large volumes as well as being further processed within the domestic market. There are obviously many conflicting arguments for the allocation of such products to a single stage within the SOP framework.

Main outputs
Economic stages: Price index numbers by stage and source, and by source and destination for Preliminary demand, Intermediate demand and Final demand products.

Classifications
From the September quarter 2012, all producer price indexes have been constructed in accordance with the Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006edition (cat. no. 1292.0).

Prior to the September quarter 2012, the SOP series (Tables 1–10) were on an ANZSIC 1993 basis, while the other producer price indexes relating to products primary to specific industries were based on ANZSIC 2006.

Other concepts (summary)
All concepts have been noted in Conceptual Framework.

GEOGRAPHIC DETAILNational & State/Territory\1.01 Australia

Comments and/or Other Regions
Data is collected across Australia and is not State specific.

COLLECTION FREQUENCYQuarterly

Frequency comments
It was first published for June Quarter 2000.

COLLECTION HISTORYThis Publication was first published for June Quarter 2000.